This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

David Ting Kwok Ho was facing criminal charges of unlawful confinement, cocaine possession and illegally having a loaded Glock 9-mm handgun in 2011 when Mossack Fonseca set up a secretive offshore company for him in violation of its own policies, a Toronto Star/CBC investigation has found.

The Panama Papers leak lays bare the due diligence protocols of Mossack Fonseca, which sometimes amounted to little more than some web searches and email requests to prospective clients for information about themselves that never comes.

Ho, a Canadian citizen, declined to be interviewed for this story. In a written statement, his lawyer, William Smart, says Ho’s offshore corporation has been “reported to (the Canada Revenue Agency) as required” and “there was no relationship or connection between the offences with which Mr. Ho was charged and the possible misuse of an offshore company.”

Ho is, the statement reads, “a highly successful businessman with a long history of philanthropy and operating bona fide businesses.”

Since the Panama Papers were first leaked in April, there has been mounting public debate about the intent and purpose of offshore tax haven corporations and the secrecy that shrouds their operations.

A federal court filing by Canada Revenue Agency (CRA) earlier this month says: “It is the experience of the CRA that Canadian taxpayers who hold, directly or indirectly or beneficially, property through an offshore entity or who may carry on business through an offshore entity, may not comply with their duties and obligations under the (Income Tax Act) and may not properly report.”

Mossack Fonseca initially registered Harmonyworld Investment Co. Ltd. for Ho in the Seychelles on July 12, 2011. An internal background check quickly turned up Ho’s well-publicized criminal charges and Mossack officials also became aware that Ho was a so-called “politically exposed person” (PEP) because of his membership in one of China’s elite families and his position as Honorary Consul for the Seychelles.

YOU MIGHT BE INTERESTED IN...

In the world of financial regulation, PEPs — generally people of elevated prominence or wealth — are considered a higher risk for potential corruption or bribery because of their positions of influence.

“This company director is a blue blood, a PEP since birth,” reads an internal email from Mossack Fonseca’s Hong Kong office, translated from Cantonese by the Star. “In addition, my client doesn’t understand why we are raising these questions.”

Mossack Fonseca declined to comment on Ho’s case specifically, but in previous written statements the firm said it enforces rigorous due diligence in cases of “politically exposed persons.”

“As per our risk-based approach, PEPs are considered to be high-risk individuals. PEPs do not have to be rejected just for being so; it is just a matter of proper risk analysis and administration.”

The firm will “routinely deny services to individuals who are compromised . . . or when we identify other red flags,” the statement says.

Ho is the grandson of the man who presided over the world’s eighth-largest tobacco company. Ho, who according to his lawyer’s statement, “believes he has credibility in the Chinese business community,” launched the now defunct Harmony Airways and was named Businessman of the Year by the Vancouver Junior Board of Trade in 2005.

On August 3, 2011, an internal email between Mossack Fonseca officials indicates Jenna Qiu, of the firm’s Shanghai office, expected Ho to bring the company business.

“Mr. David Ting Kwok Ho was Mr. Ho Ying Chie’s grandson . . . Mr. David Ting Kwok (Ho) would like to do many cases shortly.”

Two days later, Qiu makes another case to her colleagues for approving Ho as a client: “Mr. Ho and his wife (the other shareholder of the harmonyworld investment co. ltd.) have big development in SHANGHAI and China, which is approved and encouraged by Chinese government. Besides, Mr. Ho is introduced to us by an old client who has good credit. (Please note) that Mr. Ho has not committed any economical crimes and even in China, such person can be appointed as director or shareholder of a company.”

YOU MIGHT BE INTERESTED IN...

In his written statement, Ho’s lawyer confirmed Ho registered the Seychelles company to hold shares of a China-registered agricultural firm that was “endorsed by the Chinese government at both the local and state level.”

There was growing urgency to proceed, the email from Shanghai warned: “(Please) be the agent and process the incorporation as Mr. Ho has many projects in Shanghai and is waiting for the (Seychelles) one to be the parent company. And the client is much annoyed by question after question from us. They called us to complain that the process of the incorporation lasts so long. (Please) kindly let us know the final decision of you ASAP in order not to take up client’s time.”

A Mossack Fonseca lawyer in the Panama office made the call — despite still not having “clear and complete answers” to requested details about Ho’s criminal charges — Mossack Fonseca would proceed with Ho’s offshore incorporation.

Get more of the Star in your inbox

Never miss the latest news from the Star. Sign up for our newsletters to get today's top stories, your favourite columnists and lots more in your inbox

“Taking into consideration that this is not a criminal case related to economic crimes, money laundering and/or traffic of weapons or related, and also taking into consideration the references that we have of the client, we confirm that we will proceed with the client’s request and will provide the services required.”

Eight days later, Mossack Fonseca sent the paperwork confirming the details of Ho’s newly minted offshore company. The law firm’s invoice for the service was $1,123 (U.S.).

Six months after that, in February 2012, Ho pleaded guilty in a Vancouver court to a charge of unlawful confinement and possession of an unregistered, loaded 9-mm semi-automatic pistol. He was given a one-year suspended sentence, 45 hours of community service and a $5,000 fine.

In his written statement, Ho’s lawyer says the actions were “aberrant” and an “emotionally difficult and shameful event” in his life.

Harmonyworld Investment is still doing business with Mossack Fonseca and the company’s accountant “sends the required documents to Mossack each year so that it can carry out the necessary work to keep the company in good standing,” the statement reads.

There is no evidence, the statement says, that Mossack Fonseca failed to conduct proper due diligence in registering Harmonyworld, saying the Panamanian firm “properly concluded that it was appropriate to assist with the incorporation.”

Experts who reviewed the case disagree.

“Based on the circumstances, it seems like the collection of red flags was not adequately taken into account in favour of getting this deal done,” says Trevor Farrow, professor and associate dean of Osgoode Hall Law School. “The conduct did not appear to demonstrate a preferred level of due diligence taking into account the plain and obvious view of what the public would expect of a profession that is premised on acting in the public interest.”

Mossack broke no laws in assisting Ho to register a Seychelles company while he remained in the shadow of pending criminal charges, experts agree.

But the decision to proceed speaks clearly to the law firm’s “culture,” says Richard Leblanc, associate professor of law, governance and ethics at York University.

“Saying that he wasn’t charged with economic crimes is a very narrow definition of risk,” he says. “It might be legally correct to proceed in this fashion. But what are the reputational drawbacks? I still think the firm made the wrong decision.”

Look no further than Mossack Fonseca for those reputational drawbacks of offering services to clients who represent “reputational contagion,” says Leblanc, who also teaches at Harvard University.

The Panamanian law firm is now an international “poster child” for the damage that can follow from questionable due diligence practices.

“It’s a teachable moment for accounting firms and law firms all over the world.”

More News

Top Stories

More from The Star & Partners

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com